My Lords, the latest estimate from 2009-10 of the annual lost revenue to the Exchequer through the smuggling or illegal sale of tobacco products is £1.3 billion for cigarettes and £750 million for hand-rolling tobacco.

My Lords, given that this large sum of money is lost to the Exchequer, what do the Government propose to do to reduce the amount? Above all, does it not drive a coach and horses through the policy of trying to reduce smoking if there are cheap cigarettes, some of them even worse for health than the cigarettes that we make in this country, on sale on street corners up and down the country? We have both a revenue problem and a health problem.

My Lords, the strategy has many different strands. The Government issued a comprehensive tobacco smuggling strategy in April 2011. Specifically, £25 million of HMRC's total expenditure on tax avoidance is going in this area. It has to be said that over the past decade, the illicit market in cigarettes has come down from 21 per cent of the market in 2000 to 10 per cent in 2009-10. As I am sure the noble Lord knows, very significant progress has been made, and the Government are fully committed to continuing with that. On the other side, there is the tobacco control plan to make smoking less affordable. The noble Lord, Lord Dubs, is quite right regularly to press on this. It is a multi-layered strategy, and the present Government will continue to press on all aspects of this challenge.

My Lords, is the noble Lord aware that if plain packaging is introduced, as is threatened, this will increase the amount of tobacco smuggled? I declare an interest as convenor of the Lords and Commons Cigar Club.

My Lords, I can point to the success over the past decade of HMRC in particular, helped by the contribution of the UKBA, and it will be the same people, however configured, carrying on. As I have explained, money has been specifically targeted. As my noble friend also indicates, under the World Health Organisation there is a legally binding treating international treaty, which will also contribute to the further drive in this area.

My Lords, I congratulate the Government on their plain packaging campaign, which aims to reduce smoking by the young. Will the Minister confirm that the identification codes on packets of cigarettes make it easier to identify contraband products and thus remove them from this country?

My Lords, on plain packaging, it is important to recognise that this is an open consultation on which the Government do not have a view. The contributions we are getting are important and helpful to that ongoing consultation.

My Lords, do the Government understand the enormous costs for those who manufacture the packaging? I was once part of Kodak and ran a print packaging outfit. Up and down the country, a huge number of people, as well as a lot of tax and money, are involved in the packaging of cigarettes. Frankly, I do not believe that plain packaging will make a tuppenny-bit of difference.

My Lords, in tackling the illegal sale and smuggling of cigarettes and some other commodities, do the Government make any assessment of the potential reduction in their capacity to tackle these issues by the loss of staff in crucial government departments?

I know that the noble Lord, Lord Davies of Oldham, is an expert on the subject because I think that he had exactly the same Question from the noble Lord, Lord Dubs, about two years ago. He will know about the considerable efforts that his Government made. As I have already said, very specifically within the overall reduction that government departments are facing, HMRC has allocated £917 million to deal with revenue avoidance issues in the spending review period, of which £25 million is targeted at the area about which we are talking today. His concerns are fully recognised and have been met.

My Lords, we have had several hours of debate about plain packaging and its effect on young people who take up cigarette smoking. Which evidence do the Government not accept on the basis of science? Is the Minister aware of today's report from Cancer Research UK about plain packaging and its effect on children taking up cigarette smoking?

My Lords, we are in an open consultation period. At the end of that period, it will be for the Government to assess all the evidence. But I am grateful to the noble Lord for drawing our attention to another important piece of topical evidence.

My Lords, many noble Lords may remember reading Parson Woodforde's diaries in the 18th century when duty on brandy and coffee was very high and Parson Woodforde, along with everyone else, bought smuggled goods. Have the Government dispassionately looked at what might be a level of taxation that would deliver optimum tax revenues?

My Lords, I remember vaguely reading Parson Woodforde's diaries. I did not read them in the 18th century, as my noble friend suggested, but in the 20th century. It is a difficult balancing act. As noble Lords know, the policy of the Government has been to raise duty above inflation in order to deal with health issues but that has implications, of course, for smuggling and other illegal sales. Therefore, this is a more difficult balancing act where we have a health priority as well as a revenue maximisation one.